Beyond the rationality of economic man, toward the true rationality of human man

The Journal of Socio-Economics 37 (2008) 1703–1712

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Beyond the rationality of economic man, toward the true rationality of human man John Tomer ∗ Department of Economics & Finance, Manhattan College, Riverdale, NY 10471, USA

a r t i c l e

i n f o

Article history: Received 17 July 2007 Received in revised form 5 May 2008 Accepted 8 May 2008 JEL classification: A10 B40 Keywords: Rationality Normative Economic True Preferences Metapreferences

a b s t r a c t This paper reviews arguments concerning the deficiencies of economic rationality as a normative concept and develops an improved normative conception. Economists need to utilize a true rationality conception that includes not only instrumental rationality but rationality of ends. A decision cannot be truly rational unless a person is choosing what is really best considering (1) the long-term consequences of the individual’s behavior, (2) the person’s sense of morality, and (3) what gives the person real happiness. If true preferences represent what is really right for a person, then the ultimate rationality, true rationality, means choosing in line with true preferences. © 2008 Elsevier Inc. All rights reserved.

1. Introduction The concept of rationality used by economists is a central, defining feature of economics today. It is important as both a positive and normative concept. Unfortunately, it is a problematic feature in both senses. A very large number of articles and books have been written about the deficiencies of rationality as a positive or descriptive concept, but relatively few have dealt with the deficiencies of economic rationality as a normative concept. This paper proposes (1) to review and synthesize the most cogent and telling of the arguments in the latter literature and (2) based on these to develop a more appropriate normative conception of rationality. It is anticipated that this alternative conception of rationality, true rationality, will be especially appropriate for a humanistic economics. Hopefully, it will be a concept that can better serve as a guide to resource allocation in order that the socio-economy can attain its true potential human well-being. This alternative conception should also make more sense from philosophical, spiritual, and religious perspectives (particularly perspectives embodying transcendent values) than the economists’ conception. 2. The essence of rationality To begin, rationality is defined in a very general way, a way that all economists, mainstream and heterodox, might be able to agree upon. Accordingly, rationality involves the appropriate use of reason to make the best possible choices considering

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what is under the circumstances really in the best interests of the choosing agent (see Rescher, 1988, chapter 1 for similar definitions). Wide agreement on this definition is possible precisely because it does not distinguish between the two main types of rationality. The first type is instrumental rationality (also known as the rationality of means or cognitive rationality); this involves applying appropriate reason to choose the best possible means to attain one’s ends. Most economists, but especially mainstream economists, recognize this as the only form of rationality. The second type is the rationality of ends (also known as evaluative rationality or expressive rationality); this means applying appropriate reason to choose ends that serve our best interests, i.e., to determine what our objectives ought to be. In what follows, these two types of rationality are examined with special attention to the second type. A major argument of this paper is that economists need to utilize a conception of rationality, true rationality, that includes both types, not just instrumental rationality. 3. Instrumental rationality The instrumental conception of rationality is widely understood to derive from the thinking of the eighteenth century Scottish philosopher, David Hume (Sugden, 1991, pp. 752–753). Hume considered a person’s ends, one’s motivating passions, to operate outside the rule of reason (Rescher, 1988, pp. 93–94). In other words, people’s desires or aversions, their appetites, are whatever they are, and people do not try to apply reason to assess their appropriateness. Reason is only applied to choose the best means to achieve these given ends. “Reason is thus a ‘slave of the passions”’ (p. 94). And an act is considered “irrational if it is not the best means of achieving the ends that the actor himself had a view when choosing the act” (Sugden, 1991, p. 753). Over the years, economists have interpreted instrumental rationality in quite a few different ways. The predominant mainstream economic interpretation is that rational behavior involves choosing in order to maximize one’s satisfaction given one’s preferences. The rational person uses reason to find the best means to satisfy these preferences. Although the individual is considered self-interested, this merely means that the person desires to satisfy one’s own preferences; it does not indicate the substance of those preferences. The person’s preferences could be for altruistic behavior, for behavior harmful to oneself, or for immoral or evil behavior. 4. Rationality of ends Over the years, some philosophers and even a few economists (and other social scientists) have questioned the mainstream economics view that rationality is entirely an instrumental conception. Frank H. Knight, a leading economist in the early twentieth century, for example, thought the economists’ conception of rationality was too narrow: “Living intelligently [rationally] includes more than the intelligent use of means in realizing ends; it is fully as important to select the ends intelligently” (as quoted in Raines and Jung, 1992, p. 118). This section argues that what we consider to be rational behavior ought to include applying reason to select ends, not just means.1 This is because a decision cannot be truly rational unless a person is doing what is really best for that person. This implies that the rational person will have (1) reflected on his/her values and ends, (2) sought to determine what is really good for him/her-self, (3) considered the long-term consequences of his/her behavior, (4) considered what his/her sense of morality is, and (5) considered what gives him/her genuine happiness. As Rescher (1988, p. 5) points out, many of us simply do what we desire or want, but such actions may not be in our best interests or real interests. No doubt, we have a motive and some reasons for our actions, but unless there are good reasons for doing so, it will not be what is really best for us. For example, we may want to spend our money gambling on horse races, and we may have some reasons justifying it, but these reasons are presumably unevaluated ones reflecting our desires, not sufficiently good reasons. When our motivating passions “impel us toward things bad for us or away from things good for us,” this is not rational as there are no good reasons for doing these things (p. 95). “Certain preferences are absurd—preferences which wantonly violate our nature, impair our being, or diminish our opportunities” (p. 95). To put it bluntly, “a voyage to a foolish destination – no matter how efficiently conducted – is a foolish enterprise” (p. 96). When there are good, cogent reasons for pursuing certain ends, then intentionally pursuing them is in our real, legitimate interests, i.e., it is rational. “Reasons may override desires: it may be rational to do what one does not desire to do” (Sugden, 1991, p. 756). Furthermore, people have a need to reflect on and find what values and ends are right for them. “It is not enough for an individual to have a set of preferences; it is important that those desires be his or hers in a more active sense. They should belong to the individual because he/she has come through reflection to hold them as his/her own” (Heap, 1989, pp. 148–149). This aspect of rationality is about people’s quest for autonomy, i.e., people’s need to be self-directed, to be one’s own master, to be not controlled by outside forces, and to achieve a positive sense of freedom which may be accomplished to a considerable extent using reason and reflection to examine one’s purposes. In other words, part of rationality stems from people’s need to make sense of their world and to come to know what makes their life worthy (Heap, 1992, pp. 22–24). It should be noted that some important thinkers such as Fromm (1941) believe that humans also have a desire to “escape from freedom,” thereby avoiding any active, self-directed reflection and inquiry concerning what values are best for them. Another

1 Stewart (1995) argues that “economists should adopt a broader concept of reason, one which recognizes that rationality and irrationality can be characteristic of ends as well as of means, and that agents try to use their reason to distinguish among goals and choose between them.”

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possibility, as some evolutionary psychologists and socio-biologists have argued, is that humans’ reflective and inquisitive activity tends to be a group or herd affair. McPherson (1984, p. 241) believes that reflectiveness, our capacity to utilize our ideals to stand in judgment of our own preferences, is a key element of human nature. One’s reflections may often lead to changing one’s preferences to conform to one’s ideals (p. 244).2 Frank Knight, long ago, recognized that “what the commonsense individual really wants is not satisfaction for the wants he has but more and better wants” (p. 237). At other times, people yield to their preferences, falling short of their ideals. Are there things that are intrinsically good for all or most humans, things that reflection and good reasoning can help discover? As Hausman and McPherson (1996, p. 71) point out, this has been a central question of moral philosophy. The question is important because if there are such intrinsically good things, it would be in one’s best interests, i.e., it would be rational, to try to obtain them. The rub, however, is that even leading thinkers have very different views on what these ultimate goods are. “In some religious views, the ultimate good lies in a relationship with God, while in others such a relationship with God is good because of the eternal happiness it brings. Many people believe that only mental states are intrinsically good but there is less agreement here than it seems, because there are so many different views of which mental states are intrinsically good. Jeremy Bentham holds that the good is pleasure, while John Stuart Mill holds that it is a diverse set of mental states he calls ‘happiness.’ Mystics find the good in contemplative states of mind. Henry Sidgwick argued for the hybrid view that the good is any mental state that is intrinsically desirable. . .. Friedrich Nietzsche regards great achievements as the ultimate goods. Others endorse as intrinsic good a whole potpourri ranging from health and intimate personal relationships to achievements. . .” (p. 72) Despite the legitimate differences of opinion about what is intrinsically good, this does not mean that there is nothing of value to be said about this. John Stuart Mill is notable for his view that “Some kinds of experience or ways of living could be judged objectively better or [intrinsically] more valuable for people than others” (McPherson, 1982, p. 254). In Mill’s view, there are higher pleasures and lower ones, and people would be better off if they preferred the higher pleasures (Hollis, 1983, p. 254). Mill associated the higher pleasures with people’s efforts at self-development or self-realization or character perfection. The upshot is that it is rational to choose a life path involving the kind of self-development that enables you to experience those higher pleasures which are intrinsically (and really) good for you. It is also rational to choose what is in our best interests in the long-term. One difficulty with trying to do what is in our long-term best interests is that our preferences and desires tomorrow may be different from those we have today. But, as Hollis (1992, pp. 75–79) suggests, it may be possible to anticipate or foresee the preferences we will have after we choose a certain course of action.3 Thus, rational behavior, in this sense of doing what is best in the long-term, seems to involve reflectively stepping back from the preferences of the moment in order to consider the lasting core of one’s preferences.4 Rationality, however, does not mean being single-mindedly and rigidly focused on the long-term, it presumably means trying to maintain a flexible balance between responding to the needs of the moment and those of the future. It is also rational to behave morally. Note, however, that from the standpoint of instrumental rationality, following moral precepts would be irrational if these precepts conflict with choices based on our wants and desires. But from the standpoint of rationality of ends, there would be no conflict between rationality and morality if acting morally means acting on the basis of good reasons, e.g., good reasons for not pursuing certain of our wants and desires (Hausman and McPherson, 1996, p. 64). When we make decisions in line with moral commitments, we are not “hallucinating or falling into a fit”; we are using good reasoning to examine our purposes and as a consequence we may decide to do some things and not to do other things. Thus, when we reflect on our wants and employ good reasons to make moral choices, we are being rational. Further, rational behavior contributes to our happiness. According to Aristotle, happiness is the “sole intrinsic good” (Hausman and McPherson, 1996, p. 71). If so, it would be rational to behave so as to attain happiness. Aristotle called such behavior virtuous. A virtuous person is one who, because of having acquired good habits, regularly makes right choices, choices that leave one with no regrets and that contribute to one’s happiness (Adler, 1978, p. 101). Further, happiness occurs when a person “fulfills his deepest nature” and there is a “flourishing of one’s truest self” (Segal, 1991, p. 289). Thus, the ultimate of rationality is to pursue what really brings us this true happiness. 5. A framework for analyzing rational behavior What economists need is a way to integrate the insights above with economic logic concerning rational decision making. Thus, the purpose of this paper is a synthetic one, i.e., it is to develop a conceptual framework that enables a clear link

2 As George has pointed out to me, reflective thinking may not be nearly enough to produce desired changes in preferences. It may be a complex matter to shape ourselves. 3 The preference changes that people can anticipate are presumably the type that occur slowly over the life cycle as one ages and gains experience. It seems much less likely that preference changes resulting from a “sudden break” due to a traumatic event or religious conversion could be anticipated. 4 A person might, thus, be able to choose in a more truly rational manner than would be expected based on his or her actual preferences. This presumes that in choosing the person would apply the preferences he or she anticipates and aspires to.

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Fig. 1. Main elements of the relationship between preference types.

between the noneconomic insights and economic concepts, thereby helping economists and other social scientists attain a proper understanding of normative rationality. Three types of preferences are at the heart of our analytical framework: actual preferences, metapreferences, and true preferences. The concept of true preferences was first used along with the two other types of preferences in a socio-economic model explaining preference formation (Tomer, 1996, pp. 620–625). This paper further develops the relationship between these three preferences and, most importantly, indicates how they are related to a normative conception of rationality. The concept of true preferences turns out to be a key to the development of an alternative concept of rationality, true rationality. Actual preferences reflect one’s wants and desires and also one’s ability to use and appreciate goods. They are the preferences that apply when one makes an ordinary choice among alternatives. Actual preferences change over time with consumption experience, thinking and reflection, social influences, skill acquisition, and so on. Thus, actual preferences reflect a person’s endowment of two types of human capital: (1) consumption capital, the individual capacity to use and appreciate goods and (2) personal capital, the individual capacity related to one’s predispositions or general personal qualities that enable one to obtain satisfaction from one’s life activities. Personal capital is more related to one’s underlying nature, whereas consumption capital is more related to one’s skill at using specific goods and tends to be built on or utilize one’s personal capital endowment. Metapreferences are a person’s preferences about one’s actual preferences. Metapreferences derive from the human capacity for reflectiveness, the capacity to stand in judgment of our preferences and to contemplate more or less consciously their worth. “Many who regularly indulge themselves with food, alcohol, cigarettes, drugs, gambling, incest, prostitution, or pornography hate themselves for doing so and would love to be able to stop” (Rhoads, 1990, p. 86). Others have preferences, which although more or less acceptable, they aspire to replace by higher, more ideal preferences. The latter people desire to be more ethical, more harmonious, better parents, better friends, and so on (p. 87). One’s metapreferences may originate from the social learning we experience in our families, group memberships, and society, or they may derive from our more deliberate efforts to think and contemplate about what is best for us. Another possibility is that they derive from another set of preferences, our true preferences. True preferences are an ideal and represent the ultimate, unique truth about what is really right and best for a person. There are several levels of this truth. First, unlike actual preferences, true preferences do not reflect factual errors, careless logic, or bias due to the presence of strong emotion. Second, true preferences correspond to what is true for people who have attained their highest biological and psychological possibilities, i.e., their potential for high mental health and selfactualization. Third, true preferences correspond to an individual’s ultimate inner spiritual and religious truth, the truth for a person who has attained the highest degree of self-realization, enlightenment according to the Buddhists. In sum, true preferences are the preferences that a person would have if he or she were perfectly informed and on the path toward becoming a fully self-realized and spiritually enlightened human. Because a person’s true preferences are objectively true or right for that person, when this person chooses in accord with these preferences, it will lead him or her to the highest health and vitality possible.5 The main elements of the relationship between these three types of preferences are depicted in Fig. 1. The essence is a description of what goes on in the process of preference change. After considering a specific example of this process below, the three preference types are then reconsidered as important elements of the normative conception of rationality. First, an individual chooses among goods based on his actual preferences that reflect his endowments of consumption capital

5 Although true preferences are in accord with what is objectively true for that person, we cannot expect an ordinary external observer to have well informed judgment on this. True preferences are not something observable using ordinary human sense perceptions. Perhaps someone who has attained a high state of realization might be able to make a much better judgment regarding this.

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and personal capital. Second, if there is a significant discrepancy between an individual’s metapreferences and his actual preferences, this should stimulate change in his actual preferences. Third, the metapreferences, themselves, may change to the extent that one is subject to important external influences such as the wisdom and moral values of one’s elders and/or becomes more conscious of one’s true preferences. Fourth, actual preferences may change with life and consumption activity or as a direct result of external influences such as cultural values and advertising. Consequently, the net effect of these different influences leads to change in an individual’s initial actual preferences, hopefully, but not necessarily, change for the better. To illustrate, consider two classes of foods, healthy (H) and junky (J), the latter being less healthy and potentially damaging to one’s health. Individual A’s actual preferences are for J (J preferred over H), and accordingly, he normally chooses J food. However, A’s true preferences are for H (H preferred over J) as H food really is better for A’s health. The problem is that A does not know about, i.e., has not become conscious of, his true preferences. But A is somewhat aware of what knowledgeable nutritional authorities say about H and J foods and has absorbed the influences of his parents and significant family members, not to mention community and religious influences. A is also affected by external cultural influences including advertising and the styles of youth culture. As a result, A’s metapreferences are for a combination of H and J, say 50% H and 50% J food. In other words, A prefers to prefer much more H food than he currently prefers and is consuming. A, however, does not want to prefer to eat only H food, as would be the case if his metapreferences were the same as his true preferences. Because of the tension or intrapsychic stress that results from A’s metapreferences being out of sync with his actual preferences, A would be expected over time to “improve” his actual preferences, coming to prefer a combination of foods with a higher proportion of H food than initially. Moreover, it is quite conceivable that with time as A absorbs the lessons of his consumption experience and reflects on what is best for himself as well as on the biases of the cultural influences on him, that A’s metapreferences may come to be significantly influenced by his true preferences. If these new metapreferences then influence his actual preferences, it is possible that A’s actual preferences might come to reflect to a significant degree his true preferences, a change which is arguably an improvement, and which makes possible a greater degree of rationality. Of course, it could go the other way if A is overly influenced by certain aspects of popular culture and does not become more conscious of what is really good for him (his true preferences). So much for this descriptive view. Next let’s consider the three preference types in the context of a normative view of rationality. If true preferences represent what is really right and best for a person, not only in the short-term but in the long-term, not only materially and psychologically but morally and spiritually, then the ultimate of rationality, true rationality, means choosing in line with true preferences. The notion of true rationality is consistent with both of the two main concepts of rationality, instrumental rationality and the rationality of ends. First, given one’s true preferences, it is rational (instrumentally) to use appropriate reason to choose the best possible means to satisfy these preferences. Second, from the standpoint of rationality of ends, it is rational to use appropriate reason to choose ends that best serve our interests, i.e., choose ends reflecting our true preferences. As part of this latter process, an individual would have to examine his or her values and purposes in order to discover what is really best for oneself considering the long-term consequences, the individual’s sense of morality, and what provides the individual with real happiness. Thus, behaving in a truly rational manner (following this particular normative notion of rationality) means attempting, as best as one can, to discover and then to act in accord with true preferences. This idea of true rationality embodies the recognition that except for a few rare mortals, our true preferences will be at least partially hidden from our knowledge. Nevertheless, it is the essence of true rationality to try to act in line with one’s true preferences. One’s ends ought to be consistent with one’s true preferences. Moreover, it is anticipated that as one experiences personal growth, and thus, one’s true preferences become more clearly known to oneself, one’s decisionmaking behavior should become more in line with true rationality. This would be the case if ideally our metapreferences come to reflect our true preferences, and our actual preferences in turn become transformed in the direction of our metapreferences.6 6. Merit goods and true rationality Our analysis of true rationality implies that with respect to certain goods there is a likelihood that people will fail to make decisions that fully reflect what is really in their best interests. This brings to mind the concept of merit goods. According to Richard Musgrave, a merit good is a good “that the appropriate authorities are justified in judging that the level of consumption as attained through the market is too low and that the authorities are therefore justified in interfering with the wishes of the consumer in order to attain a higher level of consumption of the good” (Ver Eecke, 2007, p. 3). As defined, a merit good, whether it has a private or public good nature, involves a governmental intervention to provide more of the good without the need for any evidence of consumer preferences supporting the intervention (p. 4). In other words, Musgrave makes the case for government intervention in the absence of any market failure (as conventionally defined) (p. 15). While Musgrave does provide some arguments justifying the idea of merit goods and thus government intervention, he is unable to provide a conceptual framework that supplies a complete and

6 From the standpoint of the model involved, true preferences can be considered an exogenous variable while metapreferences and actual preferences are endogenous variables.

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satisfactory justification for intervention (p. 4; for his partial justification, see pp. 5–7). This is where our earlier analysis comes in. Using the framework developed here, it can be argued that merit goods are goods for which there is a large persistent failure of people to consume amounts of these goods that it would be truly rational for them to consume. Thus, it is not a conventional market failure (based on actual preferences) which justifies government intervention, but a failure of people to act in accord with their true preferences which justifies government interference with the market.7 7. Toward better understanding of and realizing true rationality To more fully appreciate the concepts of true rationality and true preferences, it is important to consider writings that either have anticipated one or the other of these concepts or that have developed the same or similar ideas in other words. It is hoped that reviewing these writings will produce greater insight into the nature of true rationality and the factors that enhance or retard it. Although there are rich bodies of literature (notably philosophical, spiritual, religious) on this subject, almost none of these sources uses the terms true preferences and true rationality. Nevertheless, these authors are concerned in a variety of ways with the gap between what a person wants and desires and what is best for the individual. Some of this literature is concerned with personal growth and transformation, and thus, how people might come to want what is really best for them. Below, the writings close to economics (but not necessarily written by economists), which are often somewhat philosophical in nature, are considered first, followed by noneconomic writings in philosophical, spiritual, and religious veins. The idea that some preferences are ideal, i.e., genuine, real, legitimate, or true, and distinctly different from actual preferences has been articulated by a variety of authors. According to Henry Sidgwick (Rescher, 1988, p. 96), there is a definite gulf between “what one wants” and “what is good for one.” The latter is “what one would want if—if one were fully informed, undisturbed by passion, painstaking in visualizing consequences, etc.” In Sidgwick’s view, ideal preferences are essentially fully informed preferences. Hausman and McPherson (1993, p. 690) agree and point out that “[actual] preferences may be based on false belief.” Thus, an approximation to the ideal preferences would be preferences suitably corrected so that they are based only on true beliefs. Harsanyi (1982, p. 55) recognizes that “true preferences are the preferences he would have if he had all the relevant factual information, always reasoned with the greatest possible care, and were in a state of mind most conducive to rational choice. Given this distinction, a person’s rational wants are those consistent with his true preferences.” In the view of Head (2007, p. 125), an important writer concerning merit goods, true preferences differ from actual (or ex ante) preferences in that they are ex post preferences, i.e., they reflect the satisfactions a person actually experiences. In addition to actual and true preferences, Head distinguishes ethical or welfare-relevant preferences which are an individual’s ultimate preferences. The latter preferences are higher than true preferences which in turn are higher than actual preferences in the preference ordering posited by Head. Still another view is that ideal preferences are those we would have if we were closer to being the person we aspired to be, especially if our aspirations corresponded to universally recognized high ideals. In Rescher’s (1988, p. 100) words, the ideal preferences are “sufficiently enlightened preferences” for such things as “health, normal functioning of body and mind, adequate resources, human companionship and affection, and so on.” Rescher recognizes that there may be a gap between one’s professed wants or felt wants, on the one hand, and one’s “real” wants or preferences, on the other. The latter are “what the reasonable (impartial, well-informed, well-intentioned, understanding) bystander would think that I ought to want on the basis of what is ‘in my best interests”’ (p. 102). Thus, one’s true interests or preferences are “‘what we would want if’—if we were all those things that ‘being intelligent’ about the conduct of one’s life requires: prudent, sensible, conscientious, well-considered, and the like” (p. 104). Despite this appeal to the universal, Rescher recognizes that one’s own ideal preferences will be “shaped in the light of one’s own value structure, will – quite appropriately – be different from that of another” (p. 104). Similarly, Hollis (1983, p. 258) states that a rational agent has rational (or true) preferences, and this “makes every choice into a choice . . . of what or who to become.” These true preferences presumably reflect the preferences we would have if we had better qualities (the ones we aspire to), i.e., fewer emotional disturbances, more wisdom, higher ideals, and so on. Scitovsky’s The Joyless Economy (1976) contains an analysis of preferences and rationality that resembles the argument here. In Scitovsky’s view, people are overly influenced by the tastes of society’s majority who have a strong actual preference for comfort (Sen, 1996, p. 483). If, however, these people had carefully scrutinized their options, they would have discovered another better set of preferences related to creative opportunities for stimulation that are more truly satisfying than the comforts they settle for (pp. 483–487). Because of the chasm between what people choose and what is best, or at least better, for them, their choices are not rational. People sometimes have actual preferences that are obnoxious and antisocial; such preferences might be racist, sadistic, or the result of problematic psychological mechanisms (Hausman and McPherson, 1996, pp. 77–80). Presumably these

7 In a private communication, Ver Eecke explained to me that the merit good concept also encompasses types of goods “where individuals cannot be expected to have the information or the power to do something significant: assigning property rights, anti-trust legislation, credit and banking control, etc.”

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perverse actual preferences are inferior to nonproblematic preferences, and thus, satisfying the former would, arguably, be irrational. For one’s behavior to be truly rational, one’s preferences would have to be corrected to “exclude all antisocial and problematic preferences such as sadism, envy, resentment, and malice” (Harsanyi, 1982, p. 56; Hausman and McPherson, 1993, p. 690). Such perverse preferences are far from being true preferences which, you may recall, were defined earlier as the preferences of people who had realized their highest possibilities. Moreover, true preferences are the preferences that are consistent with the kind of flourishing life that Aristotle conceived as the ideal. According to Rescher (1988, pp. 205–207), acting rationally (in line with appropriate ends, and thus, true preferences) is an essential element in what it means to be human. It follows that we have a moral obligation to develop ourselves fully in order to realize our potential for rationality. Eliminating our obnoxious and antisocial preferences would be part of the needed self-development. Religions generally have some teachings that correspond at least roughly to the concepts of true rationality and true preferences. Afterall, one purpose of religion is to persuade people to give up their actual sinful ways and to take up virtuous ways. Thus, religions generally make a distinction between what we currently want or desire and, on the other hand, what is really good for us, and therefore what we should want. Besides offering insight, religions might help its adherents realize true rationality. Below the views of Buddhism, Christianity and Islam are considered.8 First consider Buddhism. The heart of Buddha’s teaching is contained in the Four Noble Truths. They are (1) the truth of suffering (unsatisfactoriness or lack of happiness, harmony, and comfort in life), (2) the origin of suffering, (3) the cessation of suffering, and (4) the path that leads to the cessation of suffering (see, for example, Karthar, 1992, pp. 39–48; Nairn, 2000, pp. 17–32; and Rahula, 1959, pp. 16–50). The origin or cause of suffering is our negative emotions (aggression, greed, ignorance, attachment, jealousy, and pride) that lead us to craving and grasping. These negative emotions have much to do with what we want, i.e., with our actual preferences. Buddhism teaches us that if we learn about the origin of suffering and then apply the methods of the path which allow us to gain wisdom, discipline, and compassion, we can eliminate our negative emotions, and thereby, eliminate our suffering. In effect, we can transform our actual preferences to preferences that will provide us true happiness or enlightenment. At the core of this transformation is giving up attachment to materialistic or gross forms of pleasure for the more refined and superior kinds, learning to appreciate “temperance and restraint and [to] enjoy the immaterial or spiritual forms of pleasure” (Koller and Koller, 1991, pp. 375–376). Following the ideal Buddhist path can be interpreted as acting in accord with transformed (or true) preferences which arguably is truly rational if it really does lead to what is best for us (p. 376). It should be noted that Hinduism is very similar to Buddhism in these essential respects.9 Beed and Beed (1999) provide an interesting Christian perspective (Biblical Christian realism) on the nature of rationality. According to the Beeds, true rationality is manifested by Christian believers who realize the “supernatural influence of the life of Christ,” and thus, are able “to achieve God’s desired balance between self-interest and altruism in specific decision-making situations” (p. 508). The “spiritual input of Christ . . . is regarded as crucial” in that it allows the decision maker to consider a “full range of benefits and costs” without the necessity of “conscious and deliberate evaluation processes” (p. 510). In effect, it is argued that Christian believers’ molded preferences (presumably different from their original actual preferences and from nonChristians’ preferences) enable them to manifest true rationality, which is better than what nonChristians can do and better than the rationality depicted in mainstream neoclassical economics. This “Biblical rationality leans more towards non-instrumental than instrumental rationality” (p. 510). Islam, although quite different in its particulars, is similar to the other religions in having teachings that correspond to the concepts of true preferences and true rationality. According to the Qur’an (or Koran), there are two opposing motivational tendencies that act to determine how humans behave (Biraima, 1998/1999). On the one hand, people could be “motivated solely by the desire to maximize worldly pleasures” in which case an individual’s “whims become his God.” Here the “self is dominated by the motives of debauchery (greed, niggardliness, arrogance, envy, . . . etc.)” (p. 212). On the other hand, people could be “motivated solely by the desire to accumulate ‘good deeds’ that yield thankfulness.” Here “the self is completely dominated by the positive motives of piety (patience, humility, contentment, generosity, . . . etc.).” One is acting “in complete submission to God and . . . consistent with the purposes of God” (p. 213). The latter clearly corresponds to what Muslims would consider to be true preferences. The actual preferences of an individual would depend on the relative strength of the two opposing motivational tendencies. True rationality from the standpoint of the Qur’an would be acting fully in line with the true preferences of one’s “tranquil self”, i.e., the motivations of one’s higher self (p. 213). In sum, through our brief examination of three major religions, we find that each teaches that certain kinds of alltoo-common, but inferior, behavior patterns (actual preferences) should be relinquished in favor of alternative patterns (true preferences) involving more disciplined, altruistic, pious behavior that will lead their adherents along the path to God or enlightenment, and thereby, to long-run happiness. In other words, each of these religions has a distinctly different perspective concerning what true rationality means and how it can be realized. Interestingly, the different religious per-

8 It is widely acknowledged that the five major world religions are Buddhism, Hinduism, Christianity, Judaism, and Islam. Also, there are many variants of these religions. The core views of different Buddhist groups and Hindus are essentially the same. No doubt, there are somewhat different views among the adherents to different Christian and Muslim sects. It would also be interesting to obtain a Jewish perspective. However, the sampling of views cited here seems sufficient to establish the general point about the distinction between actual and true preferences. 9 For useful Gandhian perspectives, see Diwan and Lutz (1985).

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spectives on true rationality have more in common with each other than they do with the mainstream economic concept of rationality. 8. Comparing economic rationality and true rationality 8.1. Socio-economy wide comparisons: efficiency If all decision-making agents in the socio-economy are economically rational, carefully calculating marginal benefits and costs, then as we know, resource allocation ought to be Pareto efficient (assuming no externalities or other violations of the assumptions of the competitive market ideal). In this case, benefits and costs would be calculated and decisions made taking into account only purely utilitarian considerations based on whatever people’s wants and desires are. This is familiar territory. But what would the socio-economy be like if instead decision-making agents were truly rational? Decisions would not be made on the basis of utilitarian considerations alone; ends, not just means, would now matter. Presumably decision makers would take into account noneconomic as well as economic factors, subtle externalities, moral/ethical considerations, and even religious/spiritual considerations. The truly rational decision maker is one who manifests altruism, not pure self-interest, and wisdom, not simply good logic and cognitive ability. Thus, where negative or positive externalities exist, it could be argued that the truly rational decision maker would not behave in the classic self-interested, short-run, maximizing fashion, either imposing costs on society or failing to provide benefits to society. If so, this would represent a dramatic improvement in the Pareto efficiency of resource allocation. However, overall, the economy with truly rational agents would not be strictly comparable to the one with economically rational agents. Presumably resource allocation in the truly rational case would be ideal, but it is not a strict economic ideal; it is a wise human ideal which would be associated with the highest possible well-being, well-being in a much broader inclusive human sense, not the utilitarian, materialistic well-being that economists tend to focus on (for a broader treatment of well-being, see Tomer, 2002). The respective resource allocation ideals are useful insofar as they serve to indicate problematic departures from the ideal, problems for which government policy measures might be formulated to remedy. The Pareto efficiency standard has helped to identify economic activities for which resource allocation is inefficiently large, for example, medical care, industries with high levels of pollution, and inefficiently small, for example, public transportation, education. Economically rational allocation, however, must inevitably reflect people’s wants and desires which in turn reflect prevailing societal and individual pathologies. So it is limited as a way to make valid social criticisms. The truly rational allocation ideal would be more difficult to know, but, assuming it could be known reasonably well, its usefulness would go far beyond indicating inefficiency in resource allocation. It could be used to understand how societal pathology and bias have distorted resource allocation and to understand how wisdom might be applied to correct the situation in order to make people really better off. Suppose, for example, a society’s people were overly attached, even addicted, to a type of food, for example, fast food, with the consequence that this pathology contributed to them being overweight and undernourished. The promise of using the truly rational allocation standard is that it would help to identify this situation and what, if anything, could be done about it. On the other hand, use of the purely utilitarian efficiency standard is unlikely to help one gain insight into these kinds of pathology. 8.2. An important difficulty with true rationality For scholars to provide good explanations regarding rationality concepts, it helps if they have developed their own rational capabilities. So it is typical for economics students who are learning about economically rational behavior to emulate economic rationality and to take pride in the capabilities for rationality that they have developed. For most students of economics, developing their economic rationality is not too difficult. It requires learning certain concepts and developing the ability to be logical and analyze situations using these concepts. Although some students may have to struggle to overcome or control some of their irrational tendencies, becoming economically rational is to a great extent a matter of increasing a certain type of cognitive capability. This is something that standard educational processes are well designed to achieve. To become truly rational, on the other hand, is a much greater task, a much less cognitive one; it is not an endeavor that standard educational processes are well geared for. Whereas economic rationality involves maximizing the desired outcome given one’s actual preferences, true rationality requires behaving in line with true preferences. Thus, part of the process of becoming truly rational is to transform one’s actual preferences in the direction of one’s true preferences. This would require aspiring to know one’s true preferences, becoming aware of them, and reorienting ones actual preferences in line with them. This implies making progress toward overcoming one’s emotional difficulties, one’s neurotic behavior, and one’s egoism, the kinds of things that get in the way of appreciating what is really good for us. It also implies correcting one’s erroneous beliefs. Further, as part of this process, one would need to develop greater maturity, emotional balance, wisdom, intuition, and other aspects of realizing one’s high potential. Obviously, these are not trivial pursuits. From the above it is very apparent that developing one’s capability for true rationality requires much more than an investment in the standard types of human capital utilizing regular educational processes. It would require, for instance, a significant investment in personal capital, particularly raising one’s emotional intelligence. For example, suppose that one’s lack of patience is the personal quality that in decision making causes one to be biased against choosing the kind of options

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that would be best for oneself in the long-term. Thus, to increase one’s true rationality capability, one must learn, and expend resources, to become more patient, thereby making an appropriate personal capital investment. Similarly, a person could through other types of maturational learning become less angry, more disciplined, more focused and committed to one’s goals, more generous, more compassionate, more ethical, and many other positive outcomes. Again, although it is possible to raise one’s true rationality capability, it is a very big endeavor. Perhaps it is already clear that placing true rationality at the heart of economics instead of economic rationality could conceivably cause great difficulties for the economic profession and economic education. Economics is hard enough to learn; introducing an appreciation of true rationality and an expectation that students make some progress toward realizing true rationality into the curriculum would be a great challenge.

9. Implications for economics and policy If the idea of true preferences is valid, and if on the average people’s actual preferences are not close to their true preferences, and if the highest long-run well-being can only come from satisfying true preferences, it follows that people’s actual preferences are on the average inferior, and people’s well-being could be improved by helping them change their actual preferences in the direction of their true preferences.10 While this proposition goes very much against the grain of modern economics, there is a significant intellectual tradition supporting it, most notably the writings of John Stuart Mill. Mill expressed the view that people would be better off if they had different wants, wants for more valuable things, the higher pleasures (McPherson, 1982, pp. 268, 270). Although he was a strong defender of individual liberty, Mill believed that “society was justified within appropriate limits in encouraging [the] cultivation” of better wants (p. 270). What Mill advocated was “reform [of] the major institutions of society so that people would come to want things that were more valuable, both to themselves and to society” (p. 268). Besides Mill, economic writers such as “Jeremy Bentham and Alfred Marshall, were [also] alert to the benefits of encouraging public-regarding tastes” (Rhoads, 1990, p. 93). In contrast, contemporary economists have been extremely slow to condemn even disgusting tastes and have hardly bothered to encourage tastes yielding positive externalities for society (p. 93). Present day government leaders (regardless of political persuasion), however, for example in the U.S., seem to have more understanding of this issue than contemporary economists. Several years ago the U.S. federal government announced a program designed to encourage people to get more exercise. Apparently, people’s actual preferences for exercise is deficient, and people would be healthier on average, and better off, if they preferred more exercise and acted on those preferences. A question that arises in this context is how the market performs in helping people have their true preferences. Has the market and the institutions of the market economy helped people improve their preferences? In Preference Pollution, George (2001) provides much evidence that unrestricted commercial persuasion designed to shape tastes has, if anything, caused a lowering of our tastes, not an improvement. Thus, there is a “market failure” that in some cases would justify government corrective action.

10. Conclusion Is it rational to choose whatever good or service best satisfies one’s existing preferences? If so, when a dog selects one dog food over another, the dog is being rational, even if the food chosen is known to cause sickness and death in dogs. For this and many other reasons outlined in this article, the normative concept of economic rationality used in mainstream economics today is deficient. This article argues that the appropriate normative concept of rationality is true rationality. To help economists understand the significance of true rationality, this article provides a framework involving three types of preferences, a framework that links noneconomic insights with economic concepts. To be truly rational, one must decide among alternatives based on one’s true preferences, not simply one’s actual preferences. To be truly rational is to make the choices that are really the best for you, all things considered. True rationality is an ideal that few individuals can attain; nevertheless it is a useful ideal. Utilizing the notion of true rationality, we can examine one’s socio-economy in order to learn not only whether resources are being used efficiently but whether resources are being used wisely, i.e., to attain the highest possible well-being of the population. In this regard, it is important to utilize a concept of rationality that relates to human being’s highest potential, not simply a concept that can apply to any animal. If mankind is to flourish, to reach toward its true potential, it is not enough to strive for economic rationality, mankind must learn how to become more truly rational. We need to move beyond the rationality of economic man and toward the true rationality of human man.

10 The idea that people generally lack consciousness of their true preferences has some similarity to the Marxist false consciousness thesis. In one version of this thesis, capitalist workers suffer from false consciousness insofar as the social and economic forces bearing on them lead them to a false understanding of their situations and what is in their long-term best interests. Expressed another way, workers’ experiences of alienation and oppression lead them to adopt the dominant capitalist ideology and cultural values that are contrary to what is good for them. To the extent that in the Marxist thesis workers’ actual understanding of their situation and corresponding behavior is different from a true understanding of their situation and the corresponding behavior that would be in their best interests, the false consciousness notion has a similarity to the concepts advanced here (see Marx and Engels, n.d.).

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